Is a “Taper Tantrum” on the Horizon?

Share this:

Over the last several months, analysts have focused on Federal Reserve rate hikes. The central bank nudged rates up in December, and then bumped them another .25 points in March. Many observers expect the Fed to boost rates another two – maybe even three more times in 2017. But all of this focus on interest rates misses an even more significant issue facing the Fed – its bloated balance sheet.

In the wake of the 2008 financial meltdown, the Fed engaged in a series of asset purchase programs in an attempt to lower long-term rates and stimulate economic growth. In that time, the Fed balance sheet grew from under $1 trillion before the crisis to $4.5 trillion today.

At some point, the Fed will try to “normalize” that balance sheet by selling off those purchased assets. That may well be the pin that pops that stock market bubble. The AP explains what happened the last time the Fed hinted it might try to shrink its balance sheet.

“How [the Federal Reserve] proceeds is of great importance to market participants. In 2013, when the Fed signaled it would stop adding to the portfolio, stocks fell, interest rates rose and emerging stock and bond markets sank – an event known as a ‘taper tantrum’ on Wall Street, driven by investor worries about the implications of a less accommodative Fed.”

Peter Schiff has often compared the Fed to a drug dealer supplying heroin to an addict. As long as it keeps the drug flowing, the addict remains happy despite its debilitating effects. Cut the flow of heroin, and he goes into withdrawl – or a “taper tantrum” if you prefer. A major balance sheet reduction would essentially force the addict give up his heroin cold turkey.

So, while the Fed might be talking “normalization,” it seems highly unlikely the central bank can pull it off without disastrous effects. The Fed has put itself into a “damned if you do, damned if you don’t” situation. It needs to normalize. But when it does, it will deflate the stock market bubble and probably kick-start a recession.

“The Fed still has at the forefront of its mind the ‘tantrum’ that may ensue if historically unprecedented ‘accommodation’ is slightly taken away. The Fed is stuck, and refuses to admit it. The question remains to be seen: how far on the road to balance sheet ‘normalization’ can they go?”

The central bank’s main goal is to make sure the stock market doesn’t crash again. Peter said they might succeed, but only at the expense of the dollar.

“So we’re going into a currency crisis, and this crisis is going to be much bigger than a financial crisis. The impact it’s going to have on the average American, on his standard of living, on his way of life is going to be much more profound. And sure, people won’t lose as much money in their stock portfolio, but if they try to sell their stocks and spend the money, the purchasing power that they lose is going to be much greater then what was lost in ’08.”

The Fed has been able to tinker with rates recently without significant repercussions because the market remains caught up in a post-Trump election high. But there are signs the bloom is falling off that rose. It seems unlikely the central bank will be able to count on Trump euphoria to sustain the bubble, especially if it tries to get serious about normalization.

The Fed basically has two options: keep the party going or shut it down and watch the tantrum.

Get Peter Schiff’s latest gold market analysis ñ click here for a free subscription to his exclusive monthly Gold Videocast. Interested in learning how to buy gold and buy silver? Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Share this:

Related

Related Posts

Could we be on the verge of a retail apocalypse? February marked the third straight month of declining retail sales. Analysts had not expected another drop, but they got one nonetheless. Sales fell 0.1% in February. Analysts had expected an uptick of 0.3%. This is not good news for a retail sector that is already teetering on […]

President Trump’s new economic adviser did an interview on CNBC’s Closing Bell Wednesday and offered a little investment advice. I would buy King Dollar and I would sell gold.” So, should you follow Larry Kudlow’s guidance? Of course, that’s up to you. But Kudlow doesn’t have the best track record when it comes to predicting […]

Retail sales unexpectedly fell again in February. It was the third straight monthly drop and the first time the US economy has seen three straight months of declining retail sales since 2012. Sales fell 0.1% in February. Analysts had expected an uptick of 0.3%. According to CNBC, households cut back on purchases of motor vehicles and other big-ticket […]

Turkey went on a gold-buying spree in 2017. That trend continued through the first two months of 2018 as the country continues to diversify away from foreign currencies – i.e. the dollar. Data released by Borsa Istanbul shows Turkey imported 44.47 tons of gold in January and 16.03 tons in February for a total of […]

Archives

Search

My wife and I have purchased metals from a number of companies and were never comfortable with the way they pushed numismatic coins. After we placed an order for Double Eagles with SchiffGold, you called back and explained how we could get a better p…

John s.

I was impressed by SchiffGold, because you did what you said you were going to do. I have bought silver from two other major sellers of metals and was disappointed both times, one for the quality of the product and the other for taking months to deli…

Scott T.

My order came safe and sound, and I have been telling others that SchiffGold is the best way to buy physical gold. The company we bought from before we changed to SchiffGold asked for social security numbers and sold our name to many aggressive coin …

Becky K.

I was very pleased with my recent purchase. I appreciate the smooth process and very quick shipping with tracking numbers. My next purchase will be one or two bags of junk silver coins. I already have 1/2-ounce rounds, so now I want a smaller denomin…

Paul P.

The metals arrived sooner than I expected. The delivery process was great. I will be contacting you soon for another order, and I will gladly pass your name to anyone I know is interested in investing in precious metals.

Craig D.

SchiffGold is not one of the ‘name brand’ gold sellers one hears about constantly on TV. But I follow Peter’s commentary on the market and his thoughts on gold, and felt I would give his company a try. I’m glad I did, as I received my gold very quick…

Bob M.

I am very happy with my recent shipment. I felt that SchiffGold got me the best deal that I could get—a true ally in this investment! I will be using you guys in the future.

Charles M.

One of the biggest concerns I had when purchasing precious metals for the first time was sending funds overseas to a company that was new to me. However, I was put at ease by the fact that my friend had taken large deliveries from SchiffGold without …

Richard C.

Every senior broker at SchiffGold is a libertarian who is a student of Austrian Economics and not your average salesman. Everybody is extremely knowledgable about the markets, the current state in Washington, and of course precious metals. I ordered …

Daily Paul Reader

I received the latest shipment earlier today. All looks great! Delivery is extremely quick. If I know of someone who is interested in physical metals I will definitely pass them onto you. I was very leery about a service like this (phone, email, wiri…